Buy-to-let landlords’ income set to be drastically affected by this year’s tax changes.
Photograph: Christopher Furlong/Getty Images

Another tax year has started and the ripples will be seen across pay cheques in the coming weeks.

Last Friday marked the first day of the new financial year and with it came changes that will affect income taxpayers, savers, married couples, recent graduates and buy-to-let landlords, among others.

So how will your pay packet and bank balances change over the next 12 months?

Income tax

The most significant change for most people will be movements in the rates. The personal allowance has now moved from £11,500 to £11,850, while the basic rate band goes up from £33,500 to £34,500. “The bands for 2018/19 are 20% on taxable income up to £34,500, and 40% on income between £34,501 and £150,000,” according to an advice note from Deloitte.

Meanwhile in Scotland, a new income tax system has come into effect. A starter rate of 19% will apply to incomes of between £11,850 and £13,850; 20% between £13,850 and £24,000; 21% from £24,000 to £43,430; 41% between £43,430 and £150,000 and 46% on incomes over £150,000.

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Isas

While the Isa allowance – the amount you can save tax free – remains at £20,000, there have been changes in the junior Isa. The limit has been increased to £4,260.

“It’s worthwhile for parents or guardians to take advantage of a junior Isa because of their tax-free nature and the fact that they offer better interest rates than child savers,” says Rachel Springall, of the financial data website Moneyfacts.

“Not only this, but a stocks-and-shares option could offer decent growth over the years, which is useful as parents will naturally leave the investment until the child is old enough to look after the money themselves.”

Dividend allowance

There will be significant changes to the amount of tax people pay on investments in companies.

Until last week, you could earn up to £5,000 on dividends without paying tax. This has decreased to £2,000. “Directors and employees of small businesses would have heard in last year’s budget that this tax year would bring changes to the tax-free dividend allowance.

“The rate of tax varies considerably depending on the individual’s tax band. Consumers would need to carefully check their yearly income and any dividends earned due to the fall in the allowance,” says Springall.

This could mean that investors may want to move their money to an ISA, says Quentin Holt from PwC.

Consumer group Which? calculated that if £10,000 in dividends were earned in a year, a basic-rate taxpayer would see their tax bill rise by £225, while a higher-rate taxpayer would pay a further £975.

Marriage allowances

It is estimated that just 2.2m couples, out of a possible 4.2m, claim the marriage allowance which allows for the transfer of an unused personal tax allowance to a higher-earning spouse, so that they can pay less income tax.

This tax year, the allowance will rise from £1,190, up from £1,150 – meaning a couple could save an additional £238. But they must claim it. “To benefit, the lower earner must be a non-taxpayer and the higher-earning partner needs to be a basic-rate taxpayer. This allowance was introduced in April 2015 and claims can be backdated,” says Helen Morrissey, personal finance specialist at Royal London.

“In April 2015 the allowance was worth £212, in April 2016 it went up to £220 and in April 2017 it was £230. So if a married couple/civil partnership claimed for the last three years, they could benefit by £662. Last November a rule also came into effect allowing claims to be made even if a partner has died since April 2015.”

Buy to let

Further restrictions on mortgage-interest relief on rental properties have made buy to let an increasingly difficult investment strategy.

At the beginning of last year, landlords could offset all mortgage interest payments against rental income but this was reduced to 75% in the 2017-18 tax year and is now down to 50%. It will be further reduced to 25% in 2019-20, and 0% in 2020-21. With many buy-to-let landlords on interest-only mortgages, these changes have drastically affected incomes.

“The phased approach to this change started last year but the new financial year will see the proportion of finance costs that can be deducted from rental income reduce from 75% to 50%, which mean an increased tax bill for many. Eventually, in 2020/21, landlords will only be able to claim basic-rate relief on mortgage interest so it’s important for investors to consider the impact on their overall figures,” explains David Hollingworth from London & Country Mortgages.

“Given that landlords will not have to submit a tax return for last year until January 2019, there is a risk that some will not have fully assessed how it will affect them.

“The change is also likely to see more landlords fall into the higher-rate taxpayer category. It’s important to take the onset of the new financial year as the trigger to run the figures if they haven’t already.”

Student loans

Low-earning graduates will benefit from changes to the student loan system which have come in. The income level that triggers student loans repayments for recent graduates in England has risen from £21,000 to £25,000. The changes only apply to those graduates who took out the higher rate of student loans introduced in 2012.

This means that borrowers will make repayments of 9% of their income over £25,000. According to figures from the Student Loans Company, for a person who earns £27,000 a year, this equates to £15 a month – down from £45 under the previous system. For someone who earns £40,000, they will now pay £112 a month, down from £142.

The policy was announced by the prime minister at the Conservative party conference last October in what was seen as an attempt to attract younger voters, who overwhelmingly backed Labour in the last election.

Auto-enrolment

Workers in auto-enrolment pensions will see a rise in minimum contributions to 3% of salary, up from 1%. The employer contribution rises from 1% to 2%.

“There have been concerns that the rise might lead large numbers of people to opt out of their workplace pension. However, we believe that this will not be the case due to several factors. The first is the 4.4% increase in the national minimum wage from April, which will increase the pay of the lowest-paid workers,” says Helen Morrissey.

“In addition, the annual increases to national insurance and income tax thresholds may only be modest but will soften the impact of any pension contribution increase.”